Compliance said to cost more than new e-commerce tax generates

By Adrienne Burke | Small Business

If yours is one of the 10 million small businesses that generated a share of the aggregate $194 billion in sales rung up online in 2011, you're likely aware that, new this year, the IRS requires merchant- and third-party-payment processors, such as PayPal and Square, to report on form 1099-K any income paid through their services to individuals and small businesses. And you might be interested in a report that appeared on TechCrunch yesterday under the headline, "New Government ePayment Regulation Costs Small Business $10 Billion."Complying with new e-commerce tax can be costly

As TechCrunch contributor Steven Aldrich explains it:

"The 1099-K form reports 'gross sales' made, without adjusting for items like fees, refunds, returns, or fraudulent transactions. … [B]usiness owners are saying that the gross sales number on the form is coming in much higher than they expected and is causing each business to spend significant time and money to get their taxes done correctly. …Without taking this new law into account, $140 billion and 3.5 billion hours of time are spent on tax compliance each year."

Aldrich, who is CEO of a firm that provides an online accounting application to small businesses, estimates that "over $10 billion in additional costs are being incurred" to deal with the new tax law. (He calculates $180-$200 for each of the 53 million 1099-K forms issued.) That makes the cost of complying with the regulation this year higher than the tax revenue it's expected to generate over the next decade.

Chalk it up to another regulation handcuffing small businesses. To see how Aldrich recommends the IRS simplify things so that "small business owners would then be able to focus more of their energy on growing their businesses and lifting the economy as a whole," see the full article at TechCrunch.

Is your business affected by the 1099-K form? Is compliance costing you more time and money this tax season? Tell us in the comments or on Twitter at #SmallBizVote.